ADM Alliance Nutrition, Inc. v. SGA Pharm Lab, Inc.
877 F.3d 742
| 7th Cir. | 2017Background
- SGA Pharm Lab supplied ADM Alliance Nutrition with chlortetracycline under a February 7, 2013 Purchase and Development Agreement that required signed Certificates of Analysis (COAs) for each lot and tied SGA compensation to potency.
- ADM sold certain NADAs to a third party; SGA declined its contractual right of first refusal.
- On September 12, 2014, ADM and SGA executed a Termination and Settlement Agreement: ADM paid SGA $750,000 and the Purchase Agreement was terminated.
- The Termination Agreement contained broad mutual releases covering "any and all" claims "whether known or unknown" arising out of or related to the Purchase Agreement, plus an integration/nonreliance clause that disclaimed other representations.
- ADM later sued for breach of contract and fraud (against SGA and its president, Yu), alleging COAs overstated potency and caused overpayment and that ADM would not have paid the $750,000 had it known.
- The district court treated defendants’ motion as a Rule 12(c) judgment-on-the-pleadings, dismissed ADM’s claims as released, and awarded defendants attorneys’ fees; the Seventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court erred converting a Rule 12(b)(6) dismissal into a Rule 12(c) judgment on the pleadings | ADM: conversion was improper and premature because it lacked opportunity to respond | SGA: release language was part of the complaint (attached as exhibits), so facts necessary to decide release were before the court | Conversion harmless; documents were part of the pleadings and no amendment/discovery could avoid the release |
| Whether the Termination Agreement’s release barred ADM’s breach and fraud claims arising from the Purchase Agreement | ADM: alleged fraud/breach arose from prior fraudulent COAs and the T/S agreement is voidable for fraud or does not cover unknown fraud | SGA: T/S agreement unambiguously released "any and all" claims arising from the Purchase Agreement, including unknown fraud; integration/nonreliance clause precludes reliance element of fraud | Release barred the claims; claims arise out of the Purchase Agreement and were waived, including unknown claims; nonreliance/integration reinforced that fraud claim fails for lack of justifiable reliance |
| Whether parol evidence or Ainsworth supports avoiding the release for preexisting fraud | ADM: Ainsworth allows examining circumstances and continuing representations so fraud can avoid release | SGA: Ainsworth is inconsistent with Illinois Supreme Court precedent; modern authorities uphold integration/nonreliance clauses between sophisticated parties | Court rejected Ainsworth-based escape; construed contract as unambiguous and enforced the release and nonreliance clauses |
| Whether awarding attorneys’ fees to SGA and Yu was improper | ADM: Purchase Agreement lacks a fee-shifting clause; fee award therefore improper | SGA: litigation required interpretation/enforcement of the Termination Agreement, which contains a fee-shifting provision | Fee award affirmed as within the Termination Agreement’s fee-shifting clause and not an abuse of discretion |
Key Cases Cited
- United States v. Rogers Cartage Co., 794 F.3d 854 (7th Cir.) (affirmative defenses and harmless conversion to judgment on the pleadings)
- Yassan v. J.P. Morgan Chase & Co., 708 F.3d 963 (7th Cir.) (general releases can bar unknown claims, including fraud)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleadings)
- Vigortone AG Prods., Inc. v. PMAG Prods., Inc., 316 F.3d 641 (7th Cir.) (nonreliance/integration clauses preclude fraud claims where reliance is an element)
- Cerabio LLC v. Wright Med. Tech., Inc., 410 F.3d 981 (7th Cir.) (enforcing anti-reliance clauses between sophisticated commercial parties)
- Cannon v. Burge, 752 F.3d 1079 (7th Cir.) (contract interpretation of releases under Illinois law)